How Easy is It to Run Scams on Kickstarter?
We’ve written before about crowdfunding and warned our readers about how these platforms should be treated with a great deal of caution because of scams and people with no business acumen. When you crowdfund a business for equity, the only way you are getting paid back (if ever) is through a liquidity event and nothing guarantees that will take place. When you crowdfund a product or project, nothing guarantees that the product or project will be delivered on time or ever.
We recently wrote about a 3D printing company called 101Hero that is building a 3D printer at a $49 price point and while investigating this project, we realized just how easy it is to run a scam on Kickstarter. We’re not saying 101Hero is a scam, nor are we saying Kickstarter is not doing enough to prevent scams. We’re simply saying, that the Kickstarter platform seems like the perfect place to operate a scam on. Let’s take 101Hero as an example.
One of the first things VCs will want to know when evaluating a prospective business is who are the founders and what are their pedigrees. In trying to research who the founders of 101Hero are, we could only find one name tied to the project that has been validated by Kickstarter. A gentleman named Weilong You has apparently met the following criteria to start a project required of Kickstarter:
So we asked Weilong You for his background and any online presence that may validate who he is or who the founders of the company were. In fact, we saw a rather aggressive individual ask him more than 5 times for the names of the founders and their backgrounds. The question was never answered and that individual’s aggressive comments were removed.
Still, people are asking the same question over and over. When 101Hero states “we have a genius designer and some of the best engineers and programmers in the industry“, then people will want to know who these individuals are. Because if in fact 101Hero doesn’t have “some of the best engineers and programmers in the industry“, then they lied. Even worse, it’s not likely they’ll be able to deliver on the project. So aside from Weilong You, the project also lists individuals by the names of Paul Keung, Shin Lau, and Shuo Shu. None of these names return any notable profiles in Google of experts in engineering and design.
Here’s what’s probably really going on. Weilong You is the guy who had a LinkedIn profile showing that he currently works for Infosys as an engineer in the States. Quite suspiciously, that LinkedIn profile has now disappeared because if Weiling’s employer finds out he’s spending all his spare time on a Kickstarter project, they’ll show him the door so he has to keep a very low profile. His mates from university back in Shenzhen are currently fresh graduates or still studying and the group of them are hard at work on a very cool project with visions of changing the worlds etched in their youthful brains.
Now in 6 days Mr. Weilong You is going to have over $324,000 deposited into his U.S. bank account. At this point he can do one of two things. He can transfer that money to his bank account in China, fly back to Shenzhen, and buy himself a spanking new house and car while providing “updates” about how the project isn’t going as anticipated eventually conceding that he has run out of money and can’t deliver like many other Kickstarter projects have in the past. Alternatively, he can work with his mates who we can only assume have very little real-world business experience and try to produce and ship a 3D printer at the lowest price point know to man.
Now we’re all behind team 101Hero. We hope the project is a resounding success. What we are still having a difficult time coming to grasp with is how people have ponied up over $324,000 to someone they know nothing about. People will say “well, it’s just $49” or “don’t spend the money if you can’t afford to lose it” or “I’m backing the project not the people behind it”. These are all fair points, but they still don’t explain why steps can’t be taken to hold people accountable on Kickstarter for delivering on their projects instead of posting “updates” like this one:
That’s the actual latest update from the guys on Kickstarter who received over $500,000 from 4,000+ backers to deliver a 3D printer at a $100 price point called “The Peachy Printer“. Some dude named Dave took the money and bought a house with it. Seriously. We can’t make this stuff up.
The takeaway here is that it’s surprisingly easy to run a scam on Kickstarter if you have half a brain, some money to spend on building a prototype, a video camera, a website, and a mate that works at Infosys with a bank account in the U.S. There’s actually a website called kickscammed.com which tracks $2.5 million in crowdfunding scams to-date. People should challenge those who post projects and demand that they say who they are, what their backgrounds are, and what assurances they can give that they’ll deliver on the project. Even Kickstarter advises you should research who it is you’re backing:
You think it’s going to be difficult to get that money back from Dave? Try seeing how easy it is getting your money back from someone who flees to China. Let’s hope Weilong You and his mates do the right thing.
Here at Nanalyze, we complement our tech investments with a portfolio of 30 dividend growth stocks that pay us increasing income every year. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.